Swedish crown hits 6 1/2-year low against euro

London

SWEDEN'S crown hit a 6 1/2-year low against the euro on Thursday, after the central bank said the chances of another interest rate cut had increased and it was ready to expand its quantitative easing programme further.

The Riksbank has already slashed rates to -0.5 per cent and is on track to buy 40 per cent of the stock of outstanding government bonds by year-end. But inflation remains subdued and the central bank said it would take longer to hit its target than previously expected.

The crown initially rose after the announcement, as traders reacted to interest rates being left unchanged and the central bank's saying it saw the repo rate averaging -0.5 per cent in the fourth quarter, slightly above a prior forecast of -0.52 per cent.

But it then fell sharply, losing 0.8 per cent on the day to trade at 9.8000 crowns per euro, its weakest since May 2010. Against the US dollar, it fell 0.6 per cent to hit a 7 1/2-year low.

"The tone of the statement was rather dovish," said ING currency strategist Petr Krpata.

"Although no QE extension was announced today, the statement sent a strong hint . . . at more."

The dollar traded close to a three-month high against the yen, underpinned by higher US bond yields and growing expectations that the US Federal Reserve will raise interest rates by the end of the year.

The market is now pricing in a 78 per cent chance that the Fed will raise rates at its December meeting, according to CME Group's FedWatch tool, following a series of hawkish comments from Fed policymakers.

Those expectations have driven the dollar to nine-month highs against a basket of currencies this week. Higher 10-year US Treasury yields, which rose to 1.813 per cent in Asian trade, their highest since this month's five-month peak of 1.814 per cent, have also supported the dollar.

"We're seeing a renewed pickup in Fed rate hike expectations, which will likely intensify going into the November Fed meeting next week," Credit Agricole's head of G-10 currency research, Valentin Marinov, said. "We will be looking for an explicit indication in the statement that rates will be going higher in December."

Against the yen, the greenback rose 0.2 per cent to 104.65, just off its high of 104.875 touched on Tuesday. REUTERS